Wednesday, November 17, 2010

Hamtramck seeks state permission to file for bankruptcy

Mike Wilkinson and Paul Egan / The Detroit News

The city of Hamtramck, desperate for cash, has asked the state for permission to take an unprecedented step: filing for bankruptcy.
City Manager Bill Cooper said the city of roughly 20,000 people is staring at a $3 million deficit, fueled by a dispute with Detroit. Unless Hamtramck files for bankruptcy, it won't be able to pay its nearly 100 employees or 153 retirees, he said.
The city sent a letter to the state Department of Treasury last week asking for approval to seek bankruptcy protection. It has not received a reply, Cooper said.
"I'm going to run out of money Jan. 31," Cooper said. Bankruptcy would allow the city to stave off creditors and force its unions to consider concessions.
Many Michigan municipalities are under severe financial pressure following a crippling recession that has seen tax revenues plummet. The Detroit Public Schools considered bankruptcy last year but opted against it.
"I'd much rather find another way," Cooper said. "It's not Option 1."
A spokesman for the Department of Treasury said, under state law, a municipality can't file for bankruptcy without first having an emergency financial manager appointed.
Caleb Buhs, a Department of Treasury spokesman, said the department received the letter Monday and officials are studying it. Under a 1990 law, only an emergency financial manager appointed by the state can take a city into bankruptcy, he said. No Michigan municipality has declared bankruptcy before or since the law was passed, he said.
Bill Nowling, a spokesman for Gov.-elect Rick Snyder, said Snyder is monitoring what he believes is a growing problem in Michigan.
"The issue right now is to get a handle on exactly how many municipalities out there are at the point where Hamtramck is," Nowling said. "There are probably several that are sitting on the bubble."
Snyder doesn't yet know how he will address the problem but wants to take several steps to help get the economy moving, which will help the financial situation of municipalities, he said. Snyder's new chief legal counsel, Michael Gadola, is also examining the 1990 law to see if it is strong and flexible enough to deal with the situation, he said.
The city of Hamtramck has an annual budget of just under $18 million. A substantial portion of its revenues come from a tax-sharing agreement with Detroit that centers on General Motors' Poletown plant. Detroit has withheld payment for a number of months, arguing that it had overpaid previously. Hamtramck has sued its bigger neighbor, but a court resolution could take months or even longer — not soon enough, Cooper said.
Nonunion employees have taken a 5 percent pay cut and are paying 15 percent of the health care premiums for spouses and families. The union employees have not agreed to those provisions, and Cooper said a bankruptcy filing could help "force the unions to the table."
Pontiac, Benton Harbor and Ecorse have emergency financial managers, Buhs said, and Hamtramck had one several years ago. Another financial manager has completed work in Highland Park, though the governor has not yet declared that city's financial emergency over, he said. No other municipalities are in the process of having a manager appointed, he said.
Cooper said the state could name him the emergency manager, if necessary. He said that would trim the amount of time needed to take action; he already has assessed the situation and is aware of the alternatives. "That's already done," he said.
In his letter to the state, Cooper said the city has approached the police, fire and municipal unions on several occasions and won only minimal concessions. Moving "quickly to bankruptcy," Cooper wrote, would allow the city to "set aside" the current union contracts and solve the budget problem.
"While this step may seem radical in its approach, it is the only approach that will quickly and effectively allow us to address our shortfall," he wrote.
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